Meta (META.US)'s AI Gamble: Q2 Revenue Hits New High, But Profit Pain Persists as Free Cash Flow Plummets to Four-Year Low

According to news from Zhitong Finance App, after the market closed on July 29, Meta Platforms (META.US) released its financial report for the second quarter of 2026 ended June 30. This report shows a clear “split”—the core advertising business remains strong with record revenue, but profits were hit hard by heavy investment in AI and one-time expenses. In addition, the company's revenue guidance fell short of market expectations, and its cash reserves suffered a significant reduction. During after-hours trading on Wednesday, Meta's stock price once plummeted more than 10%.

Data shows that the company’s second-quarter revenue was $60.8 billion, beating the expected $60.17 billion, while EPS was $6.18, below the expected $7.22. Net profit fell to $15.85 billion from $18.34 billion in the same period last year, a year-on-year decline of 14%.

Second-quarter advertising revenue was $59.3 billion, slightly above the expected $59.07 billion. Daily Active People (DAP) reached 3.6 billion, just below the StreetAccount estimate of 3.61 billion. The DAP metric measures the total user base across Meta’s application suite.

Meta expects third-quarter revenue to range from $61 billion to $64 billion, with the midpoint at $62.5 billion. According to LSEG data, analysts' average forecast is $63.15 billion. The company noted that this guidance “assumes current exchange rates, and foreign exchange factors will drag down year-over-year revenue growth by about 1 percentage point for the full year.”

Free Cash Flow Plummets 91%: The Real Cost of AI Spending

The EPS miss may be attributed to one-time items, while the sharp contraction in free cash flow exposes the squeeze that heavy AI investments are putting on financial liquidity.

In the second quarter, Meta’s operating cash flow reached $31.86 billion, but capital expenditures soared to $31.08 billion, a year-on-year increase of 83%. Deducting the two, free cash flow plummeted to just $784 million, down 91% from $8.55 billion in the same period last year, marking the lowest level since Q3 2022, nearly four years ago.

This figure represents a cliff-like drop from the $12.39 billion at the end of the previous quarter. Some analysts point out that at this rate, Meta’s free cash flow is almost certain to turn negative this quarter.

In terms of capital expenditure, the company narrowed its full-year 2026 forecast range from $125 billion–$145 billion to $130 billion–$145 billion. While the upper bound remains unchanged, the raised lower bound means the company has committed to at least $130 billion in AI investments—a level that remains among the most aggressive capital expenditure plans in the global tech sector.

Investors are highly focused on Meta’s progress in monetizing AI-related achievements. Earlier this month, Meta released the Muse Spark 1.1 model, which AI business head Alexander Wang called "the most powerful agent and code generation model to date," priced lower than competing offerings from OpenAI and Anthropic.

Since its $14.3 billion investment in Scale AI in June 2025 and recruiting Wang, Meta has been aggressively advancing its AI strategy.

“Overall, we expect most of our compute power to be used for model training, scaling core businesses, and delivering personal agents and new products,” Meta CEO Mark Zuckerberg said during Wednesday’s call. “But we also anticipate building large-scale businesses for enterprise clients.”

Last week, competitor Alphabet revealed that its free cash flow turned negative for the first time on record due to massive AI spending. Unlike Alphabet, as well as fellow hyperscale cloud providers Amazon and Microsoft, Meta does not yet have a mature cloud computing business. However, this may change, as Meta is considering renting out its surplus computing power to third parties.

“We’re getting a lot of offers to lease our compute power, with bids significantly higher than our acquisition cost,” Zuckerberg revealed on the call.

On Tuesday, Meta announced a partnership with BlackRock to launch a $14 billion data center project in El Paso, Texas. Just weeks earlier, the company disclosed that its “Hyperion” mega data center project in rural Louisiana would see total investment exceed $50 billion. Earlier in July, Meta also announced plans to build a $9 billion data center in Alberta, Canada.

Behind the EPS Miss: One-time Expenses Aren't Everything

Meta reported that total costs and expenses for the second quarter were $42.03 billion, soaring 55% year-on-year. This figure includes $2.4 billion in legal settlement costs and $1.18 billion in severance fees since layoffs began in May.

During the call, CFO Susan Li said that if not for these one-time items, operating profit would have increased 9% year-on-year.

Net profit for the quarter fell to $15.85 billion from $18.34 billion in the same quarter last year, with EPS dropping from $7.14 to $6.18.

Meta’s Reality Labs division posted second-quarter revenue of $431 million, with an operating loss of $4.6 billion. Wall Street previously expected the division (responsible for virtual reality and AI-powered wearable devices) to post a quarterly loss of $5.07 billion and revenue of $423.4 million.

Following the earnings release, Meta's stock price plunged more than 10% after hours. By Wednesday’s close, the company’s stock price had declined for 10 consecutive trading days, with a year-to-date drop expanding to about 11%, compared to the Nasdaq index’s rise of about 5% in the same period.

Aptus Capital Advisors’ head of equities David Wagner’s comments were quite telling: "Raising the lower bound for capital expenditures and the midpoint but not giving much positive upside in revenue guidance—this really isn’t a good story.”

Still, despite short-term pressure, some Wall Street institutions remain optimistic. Bank of America issued a buy rating with a price target of $835; Goldman Sachs issued a buy rating with a target price of $815. Deutsche Bank slightly lowered its price target from $810 to $800 ahead of the earnings release but maintained its buy rating.